Best Efforts

AAA

DEFINITION of 'Best Efforts'

An agreement in which an underwriter promises to make a full-fledged attempt to sell as much of an initial public offering as possible to the public. Best effort agreements are used mainly for securities with higher risk, such as unseasoned offerings, or in less-than-ideal market conditions.

INVESTOPEDIA EXPLAINS 'Best Efforts'

Best efforts relieve underwriters from responsibility for any unsold inventory in the event that they are unable to sell all the securities. The underwriter does not guarantee that it will sell the entire IPO issue in a best efforts agreement. Such an agreement limits the underwriter's risk, but also limits the underwriter's upside because it receives a flat fee for its services.


Underwriters and issuers can handle IPOs in different ways. In contrast to a best-efforts agreement, a bought deal requires the underwriter to purchase the entire IPO issue and the underwriter's profit is based on how many shares it sells, and the spread between the discounted purchase price and the sale price of the shares to the public.



RELATED TERMS
  1. Distributing Syndicate

    A group of investment banks that work to underwrite and sell ...
  2. Negotiated Underwriting

    A process in which both the purchase price and the offering price ...
  3. Bought Deal

    In investment banking, a securities offering where an investment ...
  4. Standby Underwriting (Standby)

    A type of agreement to sell shares in an initial public offering ...
  5. Mandatory Mortgage Lock

    The sale of a mortgage in the secondary mortgage market with ...
  6. Agent

    1. An individual or firm that places securities transactions ...
Related Articles
  1. Behind The Scenes Of Your Mortgage
    Insurance

    Behind The Scenes Of Your Mortgage

  2. Do underwriters make guarantees to sell ...
    Investing

    Do underwriters make guarantees to sell ...

  3. IPO Basics Tutorial
    Retirement

    IPO Basics Tutorial

  4. Want To Sell Life Insurance? Read This ...
    Entrepreneurship

    Want To Sell Life Insurance? Read This ...

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center